Strategic Inoperability Standards and Trade Policies for Industries with Network Externalities

43 Pages Posted: 10 May 2012

See all articles by Mikhail M. Klimenko

Mikhail M. Klimenko

Georgia Institute of Technology - School of Economics

Date Written: August 31, 2003

Abstract

The paper considers a country (home) in which domestic and foreign firms produce partially incompatible products while heterogeneous consumers value both variety and a network externality. The presence of the network externalities justifies home government intervention by means of a standard requiring the foreign firm to guarantee a minimum level of compatibility between its own product and the product of global perspective. The paper also clarifies the exporting (i.e, foreign) government's incentives for a home market. Based on the analysis of the governments' incentives, we examine the equilibrium outcome of the non-cooperative game in which the home government uses the compatibility standard and the cooperative use of the compatibility policies by the countries always results in an inefficient combination of trade volume and compatibility level. The paper also evaluates the existing provisions in the WTO legal system aimed at minimizing the trade-inhibiting impact of technical standards and regulations.

Suggested Citation

Klimenko, Mikhail M., Strategic Inoperability Standards and Trade Policies for Industries with Network Externalities (August 31, 2003). TPRC 2003, Available at SSRN: https://ssrn.com/abstract=2056018

Mikhail M. Klimenko (Contact Author)

Georgia Institute of Technology - School of Economics ( email )

781 Marietta Street, NW
Atlanta, GA 30332
United States

HOME PAGE: http://www.econ.gatech.edu/docs/klimenko_vita0904.pdf

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